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Loss Aversion and Labor Supply

Author

Listed:
  • Götte, Lorenz

    () (University of Bonn)

  • Huffman, David B.

    () (University of Pittsburgh)

  • Fehr, Ernst

    () (University of Zurich)

Abstract

In many occupations workers’ labor supply choices are constrained by institutional rules regulating labor time and effort provision. This renders explicit tests of the neoclassical theory of labor supply difficult. Here we present evidence from studies examining labor supply responses in “neoclassical environments” in which workers are free to choose when and how much to work. Despite the favorable environment the results cast doubt on the neoclassical model. They are, however, consistent with a model of reference dependent preferences exhibiting loss aversion and diminishing sensitivity.

Suggested Citation

  • Götte, Lorenz & Huffman, David B. & Fehr, Ernst, 2003. "Loss Aversion and Labor Supply," IZA Discussion Papers 927, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp927
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    References listed on IDEAS

    as
    1. Colin Camerer & Linda Babcock & George Loewenstein & Richard Thaler, 1997. "Labor Supply of New York City Cabdrivers: One Day at a Time," The Quarterly Journal of Economics, Oxford University Press, vol. 112(2), pages 407-441.
    2. Gerald S. Oettinger, 1999. "An Empirical Analysis of the Daily Labor Supply of Stadium Vendors," Journal of Political Economy, University of Chicago Press, vol. 107(2), pages 360-392, April.
    3. Ernst Fehr & Lorenz Goette, 2007. "Do Workers Work More if Wages Are High? Evidence from a Randomized Field Experiment," American Economic Review, American Economic Association, vol. 97(1), pages 298-317, March.
    4. Henry S. Farber, 2003. "Is Tomorrow Another Day? The Labor Supply Of New York Cab Drivers," Working Papers 110, Princeton University, Department of Economics, Center for Economic Policy Studies..
    5. repec:pri:cepsud:92farber is not listed on IDEAS
    6. Fehr, Ernst & Götte, Lorenz, 2004. "Do Workers Work More When Wages Are High? Evidence from a Randomized Field Experiment," IZA Discussion Papers 1002, Institute of Labor Economics (IZA).
    7. Henry Farber, 2003. "Is Tomorrow Another Day? The Labor Supply of New York Cab Drivers," NBER Working Papers 9706, National Bureau of Economic Research, Inc.
    8. Henry S. Farber, 2003. "Is Tomorrow Another Day? The Labor Supply of New York City Cab Drivers," Working Papers 852, Princeton University, Department of Economics, Industrial Relations Section..
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    loss aversion; intertemporal substitution; labor supply; reference dependent preferences;
    All these keywords.

    JEL classification:

    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • B49 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Other

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